The food tech sector navigated rough waters in 2023, as venture capital funding experienced a significant downturn for the second consecutive year. According to Pitchbook’s Q4 2023 report, food tech funding saw a steep drop of 59% in annual VC deal values, plummeting to $9.2 billion from $22.5 billion in 2022. This contraction is in step with an overall deceleration in venture investing due to a combination of macroeconomic challenges and sector-specific headwinds.
Alex Frederick, the report’s author, spoke with The Spoon about some of the factors driving the decline.
“We’re seeing high-interest rates and a closed IPO window continuing to constrain VC activity,” Frederick explains. “Additionally, annual food price inflation, although slowing to 2.2% this year, has cumulatively pushed food prices to record highs for consumers. This presents a significant challenge for innovative startup CPG products attempting to enter the market at a premium.”
According to Frederick, the deceleration is particularly pronounced in specific subsectors of food tech. “The whole e-commerce space, including online grocery and restaurant delivery, is down 67% in terms of dollars in just one year, and 87% since the peak in 2021,” Frederick said. “This major deceleration is largely due to an investor shift from growth to profitability and positive unit economics.”
Investment in technology for restaurants and retail has also faced a sharp decline, dropping 71-72% over the past year and 85% over the past two years. Similarly, the alternative protein space, once the darling of food tech, has seen a deceleration, with investors increasingly focusing on companies that can demonstrate a path to profitability.
I asked Frederick about picks and shovels type of investments, and he said while the numbers don’t necessarily show up in the aggregate funding, he is seeing some increased activity by companies who are building out inputs and production for alternative proteins, including a focus on alternatives to growth serum and building fermentation bioreactor infrastructure.
“There’s just more attention, a growth of stakeholders, and a focus on building out all of the inputs and infrastructure they would need to grow that industry.”
You can see my full interview with Alex below and can download an excerpt of the report on the Pitchbook website.
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